December 19, 2014
The Question: “So your job is to figure out how to give away money?!”
When you meet new people the “What do you do for work?” conversation is a regular accompaniment, and more often than not when the phrase ‘grantmaking’ comes up, someone in the group will ask something like, “So, your job is to figure out how to give away money?!”
While true, that is one component of grantmaking, it’s crucial to explain in these conversations that work at a foundation is much more complex than that. When explaining that we have at our disposal various creative tools we can use to deploy our funding, the conversation usually becomes the most interesting one of the night. As such, in light of the holiday season and accompanying parties in full swing, we felt it was imperative to provide our readers with the IDP Foundation Holiday Conversation Guide to explaining the greatness of one such tool – the Program Related Investment (PRI).
The Answer: “We use other creative tools like PRI’s to create the biggest social impact possible!”
Program Related Investments, or PRIs, are a type of lending instrument that is often used by foundations as an addition to the traditional grantmaking process. They have been around since the ‘70s and hold “incredible potential for the social enterprise arena” and are something to be excited about if you are interested in tackling tough social issues. Inclusive in the annual 5% distribution requirement, PRIs must further “some aspect of the foundations charitable mission, cannot be used to support any political campaigns, and the production of income or the appreciation of property is not a significant purpose of the investment as it should be structured to produce lower financial returns.” PRIs can take on many forms, but are usually defined as loans, loan guarantees, and equity investments that can range anywhere from $1,000 to several million dollars with below market interest rates.
The decision to pursue the path of a PRI in lieu of making a grant is that with PRI’s there is a potential to provide a return of philanthropic capital either through repayment or a return on equity. This is the great part about the PRI, because as the funds are repaid, they can then be redistributed to other high-impact organizations in the form of PRI’s or grants. Additionally, PRIs can allow foundations more involvement, increased accountability from the organization, and even potential ownership. Meanwhile, borrowers gain secure financing for projects that could be considered too risky by traditional commercial lenders, gain access to larger pools of funds at a lower return cost, and help foster a more bankable organization over time by helping to establish a credit history.
Examples of PRI’s from the IDP Foundation
Despite heightened interest and clear value in the PRI model, many foundations are still slow to integrate them into their financial portfolio. Labeled too risky by some members of the financial community, some of the most well-known foundations have been engaging with the PRI model for over 40 years with no complaints. Thus, the IDP Foundation, Inc. (IDPF) was comfortable and excited about using a “new” lending instrument. IDPF made its first program related investment to Sinapi Aba Trust. This relationship originally started with a grant to help create and pilot the IDP Rising Schools Program (IDPRSP).
Following this grant was the Foundation’s first PRI to further the expansion the IDPRSP throughout Ghana. This was believed to be the best strategy possible to set up the partner for sustainable success and continued support without the reliance of aid. A second PRI to Sinapi Aba Trust was made this year, but with higher expectations on the rate of return. Our experience with Sinapi Aba Trust highlights another unique benefit to the borrower of a PRI, which is the long term relationship that an organization can develop with a funder to ensure positive impact is made.
This year, IDPF also used a PRI, to support the “Maya Angelou: The People’s Poet” documentary. This is the first documentary to be made about the life of the late Dr. Maya Angelou. Maya Angelou has lived not one life, but half a dozen: from her hardscrabble roots in the Depression-era South to supper club chanteuse, performer in Porgy & Bess, coordinator for Martin Luther King’s SCLC, journalist in Egypt and Ghana, comrade of Malcolm X, eyewitness to the Watts riots and best-selling author of “I Know Why the Caged Bird Sings,” her life has uncannily intersected with some of the most profound moments in modern American history and culture. IDPF believes that Dr. Angelou’s contributions to the educational landscape are monumental and a PRI provides a perfect vehicle to offer support for this project.
The film will air on PBS’ American Masters in 2016 and is being directed by Bob Hercules and Rita Coburn Whack. The filmmakers have been working on the project for three years and captured over 4 hours of interviews with Maya Angelou prior to her passing in May. The film features an amazing array of Maya’s friends and colleagues including Oprah Winfrey, Secretary Hillary Clinton, Quincy Jones, Lou Gossett, Jr., Diahann Carrol, Common, Alfe Woodard, Valerie Simpson, Jules Feiffer and many more.
Ready to discuss PRI’s?
So what about you fellow readers? What kind of program related investments would you find exciting? Or if you have experience with them, what PRI’s are you proud of?
Hopefully this blog gets you thinking about the opportunities behind PRI’s. At the very least, you should now have a basic understanding of PRI’s and be armed with a couple of examples so you can answer those pesky holiday party questions! Even more importantly, as you engage in your discussions, don’t forget to reflect on how those PRI’s, grants, individual donations, and the people behind the scenes are all working together to build stronger and more sustainable solutions slowly breaking down the cycle of poverty to make the world a more equitable place.
Interested in learning more about impact investing? Check out our other blog post, “Putting our Corpus to Work: The IDP Foundation Embraces Impact Investing”
 Bob Hercules, The People’s Poet, LLC c/o Media Process Group